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Spain's fiscal crisis exposes deep regional fault lines

Tue, Sep 25, 2012, 01:00

PADDY WOODWORTH

ANALYSIS:THE LAST thing beleaguered Spanish prime minister Mariano Rajoy needs at this moment is a constitutional crisis. Certainly, that is the opinion of the Spanish king, Juan Carlos, who last week took the unprecedented step of intervening directly in politics with an internet letter reproaching those who “encourage dissent” and “chase chimeras”.

Nobody doubts he was referring not only to the growing opposition to the harsh economic measures with which Rajoy is attempting to placate EU concerns about Spanish solvency, but also, and especially, to the related surge of support for independence in Catalonia. Spain’s acute economic woes have stretched the carefully woven fabric of the 1978 constitution, revealing flaws in the stitching that may require an entirely new garment. Significant change to that constitution, a delicate compromise between the heirs of General Franco’s 1939-75 dictatorship and the democratic opposition, has long been considered unthinkable by most of the Madrid establishment, both right and left. But it’s amazing what a little pressure from the streets can do. The spectre of Catalan independence was unleashed by a massive demonstration in Barcelona earlier this month. As in most of Spain, Catalonia’s economy has been wrecked by a property bubble and bad banking practices.

But Catalan nationalists believe that the region, one of the richest in the country, could recover very quickly if its taxes were not partially redistributed to poorer autonomous communities. Last week Rajoy rejected a demand from the Catalan nationalist first minister, Arturo Mas, for a new “fiscal pact” that would give the region full control of its own taxes. Mas then threatened early elections that could become a surrogate referendum on establishing a separate state.

And now Spain, on the left at least, is suddenly full of federalists, willing to contemplate the prospect of a new state structure that would give full recognition to Catalonia’s status as a nation, rather than face the nightmare of the break-up of Spain.

These sudden converts to radical constitutional reform include Felipe González, the very influential former prime minister for the Socialist Party (PSOE), and that party’s current leader, Alfredo Peréz Rubalcaba. One of Spain’s leading opinion formers, the founder and former editor of El País, Juan Luis Cebrián, warned Catalan nationalists at the weekend that they risked awakening “the wild beast” of right-wing Spanish nationalism. He predicted that Catalan independence would lead to poverty and misery for both Catalonia and Spain, and then also advocated a federal state as the solution. This proposal, however, is still anathema to most conservatives, so it is hard to see how it could attract the necessary consensus to gain national traction.

Meanwhile, the far right, which has so far found a curiously comfortable home within Rajoy’s conservative Partido Popular (PP), is reacting to the Catalan challenge with a rhetoric that suggests Cebrián’s “wild beast” is already wide awake and baring its teeth. For example, Martin Prieto, in La Razón, has accused Mas of “high treason”. He added with apparent regret that the Catalan leader “enjoys the advantage of knowing that in these times nobody in Spain gets executed”.

The prime minister has, to his credit, carefully eschewed provocative language in recent days. He must be keenly aware of the danger of further inflaming Catalan nationalist sentiment. He may be wondering whether the king’s letter, though he pre-approved it, has not already had precisely that effect. His strategy is apparently to isolate Mas at an upcoming meeting of the presidents of all 17 autonomous communities, by offering attractive new financial arrangements that still fall far short of Catalan demands. And at the weekend he appealed for dialogue to achieve new common ground on these issues.

This, however, is not the kind of talk that cuts the mustard with his own grassroots. Rajoy led the PP to a historic absolute majority in November 2010 on the back of a highly confrontational leadership style. He now finds himself leading a country increasingly fractured in terms of both social class and national identity, which urgently needs a unifying statesman at its helm. Yet every time he attempts to move a millimetre from the script dictated by the hard right, he is openly attacked by some of his own party barons. Yesterday, his strategy for the meeting of autonomous presidents was dismissed by a high-level PP leader.

This has also been evident in debates over another contentious issue, again closely linked to the future map of Spain. Several PP leaders have noisily defied Rajoy over even the slightest concession to hundreds of prisoners associated with the Basque terrorist group Eta, although its well-established ceasefire now appears permanent.

This hard line, applied even to prisoners who have served very long sentences and are terminally ill, attracts ever-increasing support to Basque pro-independence radicals. They now look almost certain to enter the autonomous government there after regional elections on October 21st. There are times when the PP seems the best ally of its worst enemies. On the same day, Rajoy also faces regional elections in his native Galicia, where anything but a repeat of the party’s last resounding victory there will be seen as a negative judgment on his policies. And if Mas calls Catalan elections in November, Rajoy will face a test at least as big as steering Spain clear of a humiliating EU/IMF bailout.

The irony is that he could be said to have done rather well at that one enormous task over the last two months. It is still far from certain that his strategy of persuading EU colleagues to allow direct European Stability Mechanism funding to Spanish banks – thus averting at least the appearance of a “rescue” of the state itself – will succeed. But he can claim to have halted, at least for the time being, the assault from the bond markets.

However, the response of the markets, and Brussels, if Rajoy cannot reach some new accommodation with the fractious regions and nations that make up his country, opens up a new and appalling vista for the PP leader.

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